The economics of innovation and knowledge interactions: Toward a systemic approach

Innovation systems are emergent phenomena according to the capacity of innovative actors to distribute, access and recombine complementary portions of knowledge within a given economic space. In this context, firms are facing an increase in the complexity of the interactions and connections necessary to effectively exploit knowledge externalities and integrate knowledge sourced externally. Innovation systems able to coordinate such a complex net of interconnections among various actors will also successfully internalise knowledge externalities at the system level. Innovation systems can be based upon different combinations of knowledge interactions and knowledge transactions according to the kind of knowledge they are using and producing. Knowledge transactions can prevail when knowledge can be more easily appropriated and traded, in both embodied and disembodied forms, through patents and contracts, and innovation systems take the form of modular networks and markets for knowledge. At the opposite, innovation systems are centred around knowledge interactions when collaborations goes beyond arms’ length transactions and spot contracts but instead involved long term agreements, quasi-integration between users and producers, and processes of co-design, like in clusters and districts. In between, the implementation of organizational innovations developing articulated and hierarchical networks that combine both knowledge transactions and knowledge interactions is becoming an increasingly diffused mode of coordinating knowledge generation and distribution. In these types of networks, leading firms dynamically select the members of the systems with the dual aim of exploiting knowledge complementarities and preserving network cohesion and common goals.